But what about the cost to the small guy? What chance does the average punter have? With the weight of money also comes the ability to manipulate. These 'small' transactions can be designed to trigger 'stops'. Stops used in this way are imo the most easily used tool the big traders have!!!
From today's smh at http://www.smh.com.au/business/asx-counts-cost-of-hightech-trading-20110107-19ip8.html
HIGH-SPEED computer programs have delivered an eightfold increase in the number of share transactions on the stock exchange in just five years - but sharply reduced the size of each deal.
Trading statistics published by the ASX yesterday show that close to 1500 transactions a minute are being processed, compared with barely 200 in 2005.
Those averages, though, disguise the peaks of activity (most often at market openings and closes), according to Jeff Olsson, the ASX's group executive for technology. In 2006, he said, the number of changes in the order books (buy and sell orders) peaked at about 2000 per second, while in the last year they hit 12,000 per second, compared with a system that has the capacity to handle up to 20,000. Advertisement: Story continues below
The steep climb in the number of transactions reflects specialist traders using computer algorithms designed to break up a buy or sell order into hundreds of smaller deals that can be simultaneously executed so that the market price is not significantly changed by the activity.
The outcome of having many more smaller transactions executed has, however, cut the value of the average share transaction from an average $38,000 at the beginning of 2005 to $9623 over the second half of last year.
On the ASX's numbers, the average trade last month was down even further, to $8458 - or 10 per cent lower than a year earlier. Unfortunately for investors in the ASX, after changing how it charged in 2006, it earns its revenue from the total value of trading so that the high frequency trading of computers for the professional market has not lifted the exchange's income.
ASX changed how it charged because high frequency traders did not want to be slugged with extra costs just because they were buying or selling the same dollar value of stock, but had split the single deal into several hundred.
With the likely arrival of the competitor trading platform Chi-X in the Australian market some time this year, ASX may struggle to maintain its share of the rising volume of trading in the market - one of the key factors behind its decision to accept a merger with its Singapore counterpart.
Chi-X's business model is to provide high-speed, high volume and low-cost alternatives for professional traders, something the ASX has been trying to counter by upgrading its systems, and lowering its charges, ahead of the competitor's arrival. Coincidentally, the Singapore exchange has announced plans to bring in a trading platform based on the same Genium Inet system that ASX now has running.
